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Optimal Income Taxation, Public-Goods Provision and Public-Sector Pricing: A Contribution to the Foundations of Public Economics

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  • Martin Hellwig

    () (Max Planck Institute for Research on Collective Goods, Bonn, Germany)

Abstract

The paper develops an integrated model of optimal nonlinear income taxation, public-goods provision and pricing in a large economy. With asymmetric information about labour productivities and publicgoods preferences, the multidimensional mechanism design problem becomes tractable by requiring renegotiation proofness of the final allocation of private goods and admission tickets for excludable public goods. Under an affiliation assumption on the underlying distribution, optimal income taxation, public-goods provision and admission fees have the same qualitative properties as in unidimensional models. These properties are obtained for utilitarian welfare maximization and for a Ramsey-Boiteux formulation with interim participation constraints.

Suggested Citation

  • Martin Hellwig, 2004. "Optimal Income Taxation, Public-Goods Provision and Public-Sector Pricing: A Contribution to the Foundations of Public Economics," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2004_14, Max Planck Institute for Research on Collective Goods.
  • Handle: RePEc:mpg:wpaper:2004_14
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Hellwig, Martin F., 2005. "A utilitarian approach to the provision and pricing of excludable public goods," Journal of Public Economics, Elsevier, vol. 89(11-12), pages 1981-2003, December.
    2. Stefano Galavotti, 2014. "Reducing Inefficiency in Public Good Provision Through Linking," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 16(3), pages 427-466, June.
    3. Felix Bierbrauer, 2008. "Optimal Income Taxation, Public Goods Provision and Robust Mechanism Design," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2008_31, Max Planck Institute for Research on Collective Goods.
    4. Hans Gersbach & Volker Hahn & Stephan Imhof, 2013. "Tax rules," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 41(1), pages 19-42, June.
    5. Felix Bierbrauer, 2006. "Distortionary Taxation and the Free-Rider Problem," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2006_6, Max Planck Institute for Research on Collective Goods.
    6. Felix Bierbrauer, 2008. "A unified approach to the revelation of public goods preferences and to optimal income taxation," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2008_39, Max Planck Institute for Research on Collective Goods.
    7. Felix Bierbrauer, 2009. "Optimal Income Taxation and Public Good Provision with Endogenous Interest Groups," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 11(2), pages 311-342, April.

    More about this item

    Keywords

    Optimal Income Taxation; Public Goods; Public-Sector Pricing; Multidimensional Mechanism Design; Ramsey-Boiteux Pricing;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H40 - Public Economics - - Publicly Provided Goods - - - General

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